Philosophy and economics, mostly

Category Archives: Philosophy of Economics

Smit et al seek to identify the feature of money that makes it money. They reject its function as a unit of account and a store of value as being “important empirical facts about money, but not constitutive or individuating.” (330)

What does “constitutive or individuating” mean here? When Smit et al rule out a certain function as being constitutive of money, they show either that something could function in that way and still not be money or that something could be money and yet not function in that way. And when they settle on a definition, it is of the form: “x is money if and only if Fx”. It appears, then, they they regard the form of that definition to ensure that the property F is constitutive or individuating. They rule out candidates for F on the grounds that they cannot be placed in such a statement yielding truth.

But this is far from adequate. Many expressions, describing features of money, could be substituted for F in that statement. Are they all “constitutive or individuating” features of money?

Suppose it happened, as a matter of historical contingency, that everything we rightly call “money” traced its history back to some original institution (this is highly doubtful, but suppose it were true). Then “traces its history back to the original institution” could be substituted for F in Smit et al’s definition of money. But it does not seem constitutive or individuating; history could have worked out differently so that money was invented independently in different places and at different times.

We could avoid this problem by attaching a modal operator to Smit et al’s definition. Then we have: [](Mx <-> Fx). Is that enough?

I don’t believe so. What Smit et al are (sans phrase) enquiring after, I believe, is the essence of money. And I agree with Kit Fine, that “the notion of essence which is of central importance to the metaphysics of identity is not to be understood in modal terms or even to be regarded as extensionally equivalent to a modal notion.”

Assuming that what we are looking for is a constitutive property, and that “constitutive” is not just a synonym for “coextensive”, then on the modalised account we still get false positives. Something is money if and only if Midas would love it. Or perhaps something is money if and only if it is easy to confuse with near-money substitutes. Or if and only if it is the root of all evil, or it and a fool are soon parted, etc. These properties, perhaps, can be substituted for F, preserving the truth of the definition. But they are coextensive with the property of being money, not constitutive of it.

If I were to locate the flaw of Smit et al’s test, it would be in its symmetry: [](Mx <-> Fx) trivially entails [](Fx <-> Mx). To me there is something wrong with saying that while being a medium of exchange is constitutive of being money, being money is also constitutive of being a medium of exchange. I have no argument for this, but maybe I can provoke agreement with the following consideration. The sense of “constitute” in use here seems to match D in the Lewis and Short entry for “constituere“: “to fix, appoint something (for or to something), to settle, agree upon, define, determine.” This suggests asymmetry: x’s possession or non-possession of F decides the case about whether x qualifies as M; x’s possession or non-possession of F cannot then hang on whether x qualifies as M.

To say what constitutes something’s being money, I propose, is to give the essence of money. If the essence of M consists in being F, then the converse does not hold, even though it might well be that anything that is M must also be F and vice-versa. Essence is thus hyperintentional (no, not “hyperintensional” – see Geach, Reference and Generality, 157n.)

But this means we can’t decide on essence by the tried-and-true analytic method of looking for obviously false counterexamples. There are many functions associated with being money, perhaps exclusively associated with it. These are merely coextensive not essential or constitutive. What makes an institution money is a purpose, not necessarily represented in the minds of agents (few purposes are), but embodied in the institution. I gloss “embodied” as: coinciding as both the formal and the final cause of the institution – acting as its “primary cause” (Arist. Metaphys. 983a26). Looking for this is something that would have come naturally to most philosophers before the twentieth century. We postlapsarians will have to do our best.

Thanks to Mike Otsuka for pointing me towards a new article by Smit, Buekens, and Du Plessis in the Journal of Institutional Economics, which addresses the vexed question what is money?

Here is the first part of the abstract:

What does being money consist in? We argue that something is money if, and only if, it is typically acquired in order to realise the reduction in transaction costs that accrues in virtue of agents coordinating on acquiring the same thing when deciding what thing to acquire in order to exchange.